Why do some companies refuse to pay dividends?

At first it may seem disrespectful or counter-intuitive to see companies withholding all income from investors, but this strategy can be in the interest of all shareholders.

When companies are in their ‘growth phase’, they typically require ever-increasing amounts of capital to fund new equipment, new facilities, research & development and to cover initial losses.

Under these circumstances, it is not in the Director’s interest to return capital to shareholders.

Any dividend paid would only need to be replaced by another form of fund raising, such as an IPO or a bank loan. Cash-hungry businesses need to retain as much cash as possible, not pay it back out to shareholders.

As long as this strategy is well communicated to shareholders, it won’t cause concern. Shareholders place value in their shares not on its ability to produce income now, but their ability to produce potentially larger income streams when the business matures.

That being said – you may have a strong preference for dividend-paying companies because you need to receive an income from your investments. In this case, dividend-non payers may be best avoided.

How to tell whether companies pay dividends

When looking at the summary company metrics, you will see a ‘Div yield’ percentage. Dividend yield is the annual dividends per share divided by the cost of one share. Without dividends, this cannot be calculated and therefore will show as blank or a ‘ – ‘.

As a final thought, before you write-off dividend-blocking companies completely, do consider the following list of companies which have (at some point in their corporate life) not paid dividends:

Apple

Amazon

Google

Netflix

Facebook

Each of these companies have delivered returns in excess of 100% to investors – despite paying zilch in income. Any shareholder who excluded these technology giants from their portfolio on the basis of their tight dividend purse strings, will have missed out on a major component of the US stock market gains from 2013 – 2020.

Thanks for reading our article on ‘Do all companies pay dividends?’

I’ve collected together a list of other investing Q&A articles from the blog that you might also want to explore:

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I founded Financial Expertin 2011. Originally conceived as a simple investing blog, it has slowly evolved into one of the leading personal finance news and educational resources in the UK.

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